Why The Nike Bull Thesis Actually Just Got Stronger

Shares of Nike Inc NKE were trading lower by more than 4 percent Wednesday morning in reaction to a mixed earnings report, but some analysts remain as bullish as they were heading into the print. Morgan Stanley's Jay Sole maintains an Overweight rating on Nike's stock with a price target lowered from $64 to $62 as the earnings report solidified the bullish case for owning the stock.

Heading into the earnings report the key debate surrounding Nike was if the "innovation engine is broke," Sole commented. The earnings report suggests that "bulls are more likely to win" the debate as management said that Air VaporMax shoe holds the biggest market share within the $150-and-up price point. This implies that Nike is outselling adidas AG (ADR) ADDYY's highly touted Ultra Boost and proof it can still innovative.

Another key debate heading into the earnings report surrounds the company's North American business and if it can "fix" its recent struggles, the analyst continued. There are four reasons to point to future strength, including:

1. A re-implementation of the MAP pricing policy.
2. A pull back from "unhealthy" distribution venues.
3. A commitment to solidifying the Jordan brand.
4. Ongoing adaptation to the lifestyle fashion trend in an "authentic" way.

"These courageous and arguably unexpected steps partially explain weak North America guidance," Sole concluded. "Yet, they are critical in our view for Nike to ultimately resume healthy North America growth."

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